Godfearing moneymen" at hedge fund shrug off CEO's bizarre attempts to proselytize.

At Bill Hwang's Archegos Capital Management, employees would refer to "God, Hwang and Archegos" as their guiding principles. Hwang would often describe himself as the money man who teaches pastors about the Bible.

A lawsuit filed by the former managing director of Archegos, Brendan Sullivan, claims that he is owed $50 million in deferred bonuses. The suit alleges that the company's founder, Hwang, was fixated on becoming the richest person in the world and would do whatever it took to make money.

The civil lawsuit, which was filed in New York, is the first insight into the company that entered a death spiral after the Covid-19 pandemic rocked markets in March 2021. Hwang lost more than $20 billion within a few days of it spreading. Sullivan writes that loyalty to Hwang was more important than performance at the company. Those who complied were "good followers" and those who questioned were publicly belittled, according to the lawsuit.

The lawsuit followed the federal prosecutors' charges against Hwang and Archegos's CFO Patrick Halligan for fraud and conspiracy, as well as market manipulation. The two men pleaded not guilty to the charges and plan to fight them.

Federal prosecutors accuse Archegos founder and CEO Hwang, former CFO Halligan, and four other executives of defrauding investors by misrepresenting the value of their company's deferred compensation plan. Sullivan's lawsuit alleges that Hwang and Halligan forced employees to invest a large chunk of their annual bonuses into the deferred compensation plan with false promises that the principal would be protected, there was "no downside risk," and it would never drop below its previous year’s value.

Hwang's attorney, Lawrence Lustberg, declined to comment. Halligan's lawyer did not immediately respond to a request for comment.

Michael Bowe, the lawyer representing Sullivan, said that the fraudulent activities at Archegos went beyond Hwang and Kim. "Hwang couldn't have defrauded these employees without the active assistance of his senior executives," Bowe said. "These employees were lied to just like the banks, and those responsible should be charged for that fraud as well."

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On March 26th, when Archegos collapsed, the Hwang team held a firm-wide call in which they made it clear that employees should not ask to collect their deferred comp. Sullivan claims that the deferred compensation fund had about $500 million in employee contributions at the end of February, but by that call it was zero. Mills said on the call, "Don't play games and try to quit."

Hwang and Mills assured the employees that they would "take care" of them, that there were funds available from Hwang's personal funds and from his charity, the Grace and Mercy Foundation.

Sullivan's lawsuit states that Hwang and his management team saw the foundation as an "escape pod" for Archegos in case their primary investment business ever failed. The shared back-office functions, shared investment strategies, and intermingled finances between the foundation and Archegos indicate a close relationship between them.

"Hwang repeated these statements at the firm's retreats -- which were shared with the Foundation -- in 2018 and 2019, when he again told employees that the Foundation was his 'backup plan' and if anything ever happened to Archegos, he would be fine and would continue investing through the Foundation," according to a suit.

In December 2018, when Archegos' portfolio had dropped by 35%, Hwang told employees that he was not worried about the drop in value, because if Archegos ever ran out of funds, he would always have the Foundation and continue to operate there. He said that a select group of "loyal" employees and "good followers" could join him.

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During annual performance reviews, Sullivan alleges that Hwang would “evangelize his religious beliefs” and request that employees attend scripture readings funded by his charitable Christian foundation. The suit also claims that Hwang would often say, "I am the money guy who teaches the Bible to pastors."

Hwang and his deputies would also lash out at employees who raised questions about the investment strategy. The suit cites an incident from a firm-wide meeting in December 2020, where a staffer asked Hwang why he was buying the same concentration of risky stocks every day. Hwang lashed out at the employee, telling him that he was "misinformed" and should "pay attention" and that he wasn't buying these stocks every day.

Whenever an employee emailed Hwang to raise questions about a particular investment strategy, Hwang would "often copy the firm in a reply that disparaged and demeaned the employee and the employee's thoughts," as stated in the suit.

The lawsuit’s claims are focused on the Archegos deferred compensation plan, which was described by management as “voluntary.” Sullivan said management "encouraged" and "pressured" key employees to invest by promising that their baseline contributions were guaranteed. He also said the firm required employees to decide whether or not to contribute the maximum amount to the plan before Hwang awarded bonuses, “showing clearly that whether they elected to contribute and in what amount would be a major factor” in the bonus decision.

The suit says that the message was clear: no contribution, no bonus. The protesters were ignored and punished when they protested this practice.

The case is Sullivan v Hwang et al, 22-cv-5675, in the US District Court for the Southern District of New York (Manhattan).